It is a confusing subject and I was not surprised when I discover that most people are under-insured.
I, like many, had the wrong kind of insurance for a very long time. It was only when Keith and I started learning what it meant to achieve Christ-centered financial wellness that I began to understand the purpose of life insurance.
I've learned a lot over the years and Keith and I are now properly insured. Today I want to make sure you have the info you need to put your mind at ease about the subject. Here's what you need to know about life insurance.
Who needs it?
- If someone depends on your income and you are not independently wealthy, you need life insurance.
- That means you probably don't need as much (if any) life insurance if you're single with no kids (or grown kids).
What kind of policy?
- You want to purchase term insurance, not whole life.
- "Whole life" also means universal life or indexed universal life.
- Basically, keep your savings and investing separate from your protection in order to keep premiums low and your savings rate of return high.
- Indexed universal life is the latest version of whole life and it's not a good long term strategy for savings. It's great for the insurance broker, but not for you.
How much coverage?
- The definition of good coverage is at least 10 times your annual income. That means you need at least $500,000 in coverage if you make $50,000 a year.
- Don't forget to insure stay at home parents.
- Just because someone does not work outside the home does not mean they do not add value.
- If a stay at home parent dies, the surviving parent will need to pay someone to pick up the slack.
- Typically, the amount of coverage would be between $250,000 and $400,000 depending on the total household income.
How long do I need coverage?
- It depends.
- If you have little kids, you probably want between 20 and 30 years. If you have older teenage kids, 20 years should be fine.
- If you are married and have a mortgage, the coverage needs to last at least as long as the mortgage. That will allow the home to be paid off when you die so that your spouse does not have to carry the mortgage on their income alone.
- Not married but have a mortgage? You can instruct your executor to sell the house when your estate is liquidated. Yet another reason everyone needs a will.
- The bottom line is you need to review your full financial goals before you can make the decision.
Where do you get it?
- Most employers offer some level of term life insurance, typically in multipliers of your income. It's usually pretty cheap but does not provide adequate coverage. Take advantage of the low cost, but add extra coverage.
- Supplemental policies keep you from putting all of your insurance eggs in one basket. You definitely want to have other policies outside of work, in case you lose your job or become ill.
- For your extra coverage, work with an insurance broker not a company agent. This is someone who represents multiple companies instead of just one. They will help you choose the best policies for your needs.
Who are the beneficiaries?
Name anyone who relies on your income as your beneficiary. You can also name charities and organizations as beneficiaries.
Review your beneficiaries every few years to make sure they are current. We made our estate the beneficiary of all of our policies. That means everything is updated when the will is updated. We review our will every two years.
Don't make your kids your beneficiaries. Some states won't allow minors to receive insurance proceeds. Choose a trustee to receive the proceeds on behalf of your children. Detail everything in your will to avoid confusion.
Have you picked up the need to have life insurance and a will? I hope so!
I am happy to do a FREE analysis of your insurance needs if you're interested. Contact me and we'll review your coverage to make sure it is sufficient.
Ezekiel 38:7 says “Be prepared. Yes, prepare yourself...You must watch and be ready." The best way to be prepared financially is by having adequate life insurance and a will.
How adequate is your life insurance coverage? And do you have a will? I would love to hear your thoughts on the subject.
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Until next time...be well...be encouraged.